Why reviving debt-ridden Uchumi Supermarkets and Mumias Sugar Company remains a tall order

The miller was the largest sugar factory in East and Central Africa. [Benjamin Sakwa, Standard]

In the run-up to the 2017 General Election, Mumias Sugar Company was set to receive Sh500 million from the National Treasury ahead of President Uhuru Kenyatta’s tour of the Western Kenya region.

And at the end of the election year that saw Kenyans go to the polls twice, another state-owned entity Uchumi Supermarkets had received Sh1.2 billion as part of the government’s plan to revive the ailing supermarket chain.

But fast forward to 2021, and the fortunes of the two companies have never been direr. 

And the government seems to have all but given up on them as they continue on a downward spiral amid piling debts.

For Mumias Sugar, politics, it would appear, is at the heart of the miller’s failed turnaround efforts.

Narendra Raval, the founder of steel and cement manufacturing company Devki Group learnt this firsthand when he expressed interest to revive the miller now under the receivership of PVR Rao.

“Of course, there is politics everywhere. If it is healthy politics, I have no problem, but if it is dirty politics, then I will stay away,” said Mr Raval in a television interview in June.

Some of Mumias Sugar Company's cane crushing machines. [Nathan Ochunge, Standard]

He had planned to pump Sh5 billion into the company. This, however, did not go well with leaders from the region, among them Kakamega Senator Cleopas Malala, who in June claimed another investor was willing to fork out up to Sh39 billion.

And before the dust settled, Raval pulled out of the leasing plan.

“Why are you leaving out an investor who has more money in favour of the one with Sh5 billion and who has not put out all information on the revival plan?” posed Malala.

Mumias was placed under receivership in September 2019 by KCB Group, with the lender appointing PVR Rao as the receiver-manager.

But it has not been all smooth sailing for the receiver-manager. He would soon after taking over be summoned by the Senate Agriculture Committee to explain why a previous bid for a strategic investor was done privately.

“Private bidding is fast and less expensive, but it is public knowledge that Mumias is up for lease,” said Rao during the committee hearing.

He revealed that an earlier cash injection into the miller by the State had been used to settle debts.

As of 2018, Mumias liabilities stood at Sh30.1 billion against assets of Sh15.7 billion.

Uchumi Supermarket along Agakhan walk in Nairobi. [Wilberfore Okwiri, Standard]

Things have not been any rosier for retail chain Uchumi. Uchumi went into receivership in June 2006 with debts of Sh2.2 billion.

Of this, Sh957 million was owed to Kenya Commercial and Trade and Development Bank, formerly the PTA Bank.

The retailer’s shareholders voted to end the receivership in 2010 after most of the retailer’s debts were cleared and others converted into shares.  

The government stepped in with a Sh675 million bailout, only for the retailer to slide back into debt in 2014.

Former chief executive Jonathan Ciano in an interview in 2018 blamed some “strange” investors and a “wrong” model of business for the retailer’s failure.

“A retail centre or fast-moving consumer goods business cannot rely on heavy gearing, you know, it’s hard getting out there to find money to finance the business because the margin is barely 22 per cent,” he said. 

“So when you go to the bank and over-borrow, then definitely you do not have any trading margin.”

He said by the time he left Uchumi in 2015, the retailer had not only relisted at the Nairobi Stock Exchange but had also grown in value from Sh3.7 billion to Sh14 billion.

“When they came, they had their own agenda… they threw away the strategy that was taking us around the corner and put in theirs,” said Ciano.

Dr Julius Kipng’etich, who took over from Ciano but resigned months later, said in 2017 the recovery plan involved converting debts worth Sh1.8 billion owed to suppliers into equity.

This was in addition to a Sh1.2 billion bailout package from the government earlier that year.

But suppliers were apprehensive of the plan after a similar arrangement in 2006 ran into headwinds, with some suppliers saying it did not provide value for their money.   

“It is not true that some suppliers never got any value for money. The conversion price was Sh10, but some waited for Uchumi to peak, and it did at Sh22, so those who were patient benefited handsomely,” he said.

By then, Uchumi owed suppliers Sh3.6 billion and banks Sh1.6 billion.

In March 2020, Uchumi met with suppliers to vote on a Company Voluntary Agreement (CVA) to avoid the retailer from folding up.

The CVA was to allow the suppliers to get a bit of their money. But why do the government keep on pumping money down the drain when it comes to companies it has a stake in?

XN Iraki, an associate professor at the University of Nairobi’s School of Business and a columnist with The Standard, said the push for the revival of struggling companies is not a new phenomenon in Africa.  

He said governments do so for strategic or national interests. 

“The reason why they revive them is simple: to get votes. But the other question you should be asking is why should we keep on reviving institutions that are not economically viable?” posed Prof Iraki. 

He said politicians need to show the electorate that they are doing something, and what is better than reviving ailing companies or organisations even when the right action economically is to fold them up altogether? 

“I can assure you a politician does not think like an economist or accountant because if you fold up Mumias, people in Western Kenya will start saying ‘you have finished us’,” explained Iraki.  

Samuel Nyandemo, an economist and lecturer at The University of Nairobi, said entities like Mumias and Uchumi are used as campaign tools by subsequent governments. 

Others, Dr Nyandemo said, are kept afloat with the single purpose of siphoning money by politicians and their cronies.   

“As such, money is budgeted for, but it does not go into those particular projects,” he said.   

[email protected]